>> booktv is on twitter. follow as for regular updates on our programming and news on nonfiction books and authors. twitter.com/booktv. and now phil trupp on "ruthless: how ordinary investors beat the biggest scam in wall street history". >> good morning and welcome to the second annual gaithersburg book festival. i am danny windborn and probably long term president in the city of gaithersburg. i'll also a planning commissioner in the city of gaithersburg and are am a member of the gaithersburg book central committee. a quick couple of announcements. we are consideration for everyone, please silence any devices you may have that make noise of any kind.
your feedback is critical in helping us continue to improve this event and surveys are available here at the information desk and on our web site. anyone who commits a survey will be entered into a random drawing for a nook. we welcome c-span booktv and viewers across the country. if there's time during the presentation for audience questions please make sure to use the microphone in front so everyone here in the television audience will hear you. phil trupp will be signing books immediately after this presentation. phil trupp's books are on sale in the bonds and noble tend. phil trupp is an author, journalist and adventurer with a career that has spanned three decades. phil trupp has been a daily news reporter, em major magazine
feature writer and author and editor of more than a dozen books. he is working on three novels as well as feature-length films with a spy thriller theme. phil trupp was associated with project mercury in the early days of nasa and is an official noah are one not. he led journalists to live beneath the sea and was one of first journalists allowed into fidel castro's cuba and has explored the rain forest and found sunken treasure. one might think that phil trupp is the real-life equivalent of the most interesting man in the world. i wonder if his mother has a tattoo with her son on it. now to his book "ruthless: how ordinary investors beat the biggest scam in wall street history," how investors beat wall street. this recounts how the auction rate securities market went from a sound manner in which to finance large equities to one
that was filled with fiduciary irresponsibility, fraud and silently became one of wall street's greatest charades. little is known about the huge financial scam and its ultimate impact but phil trupp's book lays out in clear detail how it came about and how many investors were bound to recoup their major losses. one review of the book points out how this provocative story might easily lend itself to a potential feature-length film. in fact pbs is preparing to air a special on "ruthless: how ordinary investors beat the biggest scam in wall street history" nationally this summer. it is with great pleasure that i welcome mr. phil trupp to the podium. [applause]
>> hello, everybody. i want to first apologize for having to sit down. i am falling apart and can't stand up so i am sitting down. i want to thank danny for that fantastic intro. thank you very much. i appreciate that. i want to thank carol emma crosby who arranged this share and my lovely microphone and also jean taft who was instrumental in bringing me to this tend named for the great james michener of whom i am quite fund. and i would like to introduce you to a very interesting wall street event known as the auction rate scandal. auction rate securities scandal. before there was bernie madoff, before the mortgage fraud,
before the september of 2008 melt down, there was the auction rate securities scandal. the auction rate securities scandal was the biggest scandal, the biggest fraud that wall street ever perpetuated up until that time. essentially it was a market fund just like your ordinary money market fund you find in debate or at your broker's. it was sold as completely safe, no problem, as good as treasury bonds, it will take you right to heaven, until it didn't. when it didn't there were $336 billion in cash frozen overnight by every bank, brokerage and securities dealer in the western world are none. it was take the money and run and that is what they did.
they were not about to give it back. there was no way. we have a liquidity problem. we just can't afford to give back your money. the $336 billion is 20% of what it takes to run the entire federal government for year. that is how monstrous the scale of this happened to be. so having no assistance from the securities industry the banking industry and all the geniuses of wall street who conducted this little scheme, there was nothing left to do but find some other financially savvy people, mostly on line. we got together a small group of us. there could not have been more
than a dozen total. a dozen commandoes and we decided to go after the banks, brokerages and everybody who dumped on us and took this money and get it back and that is what we did and that is exactly what this book is about and that is why it was named ruthless. because the industry was every bit as ruthless as it could be in grabbing our money and we were as ruthless as we could be in regaining our money. i will tell you this and this is in general and is a wall street axiom that when wall street cuts itself, you believleed.
you are the one who has to be refitted with new prostate or whatever. we had to take it on in that regard and every way we could and confront congress and all the regulators. we did. they talk a lot. regulators are very vocal. barney frank was helpful up to a point. he held hearings on our behalf and it was great because you had the whole house financial services committee and all of them had pinched brows and faber quite concerned and asked penetrating questions and in the end they did nothing. so later at an event which i attended with my wife sandy in which hillary clinton was the main speaker i bumped into
barney frank and i said congressman, what happened? you hold these lovely hearings and may lot of noise and enraged a lot of people, me in particular, and yet nothing was done. and he said the larger picture got in the way. by that time the whole market had melted down and everyone was losing money hand over fist and all the contributors were running for the hills and we individual investors didn't seem to account for a lot to the house financial services committee and this includes democrats and republicans. republicans were just as outraged by this event as were the democrats. for once in a blue moon we had comedy in washington. the financial industry shouldn't be stealing money, but that
happens every now and then and anyone who is humble now will tell you that and that is too bad too. let me tell you a few stories. some of the people we dealt with we dealt with on an individual level with many victims. there was a woman, a physician, blind, who lived in miami, florida. she with a client of oppenheimer co. and 75% of her life savings co. and 75% of her life savings were in options securities. in addition to being blind she was an invalid. she could get out of bed. she called and asked if i could help. i said i will do everything i can. she told me her story and we paid a great deal of attention to it.
she told me representative oppenheimer co. came to her with 300 pieces of legal paper for her to read and sign which was difficult for her given the circumstances of her eyesight, to sign confidentiality agreements and i thought at that time this is the perfect story to take to the new york times. i had a great in at the new york times at that particular moment. so i said we can get the story in but you have to put your name behind it and she said i don't care. i don't care. they told me if i spoke out, 5 put my name out and i said oppenheimer and put my name behind it i would never get my money back. when you think of oppenheimer and you see them coming on television with their hands holding together like this, this is the right way to invest, tea
that story in mind. oppenheimer was one of our most difficult people. another one you might be interested in, wells fargo is still given its problems. a man from california called me up in his 70s, he had worked his entire life to build a defense contracting company out there and unfortunately had congestive heart failure hand turned over the company and in a position to benefit from the sale of the company and the company was eventually sold and had his entire adult life handed to him with a check. he took the check to wells fargo
to his broker, handed it over and you have worked hard. you are a good guy. we will put you on auction rate securities because that is the best money fund there is. we have all these hot shots and institutions and everybody. three weeks later the market froze. the man's life was gone. it was gone. he started selling furniture out of his house. started selling furniture out of his house. i spoke with his wife. i have no more dreams. that statement somehow or another stayed with me even to this day. i have no more dreams. no more dream is. if you have any dreams don't ever take them to wall street, my friends. that is my advice to you.
i am very happy to answer questions about this. i could tell you all kinds of horror stories. i don't want to the press you on a beautiful afternoon but the point is that wall street is pretty much a product machine. one of the ways you can tell it is a product machine is by all the homes out there. bond traders that i knew at citibank told me well in advance of a mortgage scandal how they were going to pull it off. they had stacked securities in a certain way and they were going to bet against these securities. that is what goldman sachs did. you may be familiar with that. goldman sachs sold mortgage-backed securities to its clients and that against them and made an absolute fortune but to cover it up there was a portion of mortgage-backed securities they were bullish on and lost a little bit of money
so when regulators came to fix it they said we lost a little bit too. and that was let go. but the auction rate securities scandal kicked off a bigger meltdown in 2008 because it proved once and for all to wall street that you can get away with murder. you can take people's cash. you can tell them this is cash. this is as good as treasury bonds if not better. the minutes somebody tells you you're going to get a little more interest that is the moment you want to pull back. that is one of the lessons we learned from this. a little more interest, little more risk, little more danger, a little more lying. pull back. the product machine continues to turn out similar products. i got a call recently from
people living in tent communities in hawaii. in lovely hawaii on the north shore. because they are all broke. their brokers told them auction rate securities were the way to go and away they went was on the north shore of honolulu. and oahu. again, this was essentially the story. i could tell you many more. i am still getting calls. i got a call the other day from a guy in israel is said to me naively after i had hoped to acquire a lot, he lost a million dollars, he said do you think you can talk to your friends at the new york times and have the right and editorial about me? i don't think so. i think that is a bridge too far. there is only so much we can do.
out of $336 billion that are outstanding our little group of financial commandos, we got back $200 billion. i don't make a dime out of that $200 billion obviously. i got my money back and i got money back for a lot of other people. but there's still $100 billion under challenges that remain out there so i remain in the fight and i say to the financial industry, you guys out there, hello, raymond james, we are still out there and still kicking and raymond james is another one that told as the other day they had, quote, meritorious reasons, meritorious reasons for naught redeeming the our trade securities money fund to the tune of $1 billion to its clients.
it is so sad when you see them putting up their billboards and buying sports stadiums down there in tampa. it must be a tough life, raymond james, but we are still out here. what more can i tell you? we are still out there. we are still fighting. we continue to fight. i hope this serves as a warning for those of you who have come. i hope i don't sound like i am bragging. it has been a rough play over three years. we continue at it. if anyone needs our help you can reach us. we are here and i am happy to take any questions you may have. >> why isn't there any criminal prosecution? >> that is a very good question. that is the question everybody asks. i would say last week's rolling
stones have a wonderful article by matt taibi who asked the very same question. wall street contributes a great deal to both parties. nobody wants to bite the hand that feeds them. the justice department did make a show in that it rounded up 32 little crooks for a total of about $8 billion out of these 32 little guys and made a big to do about it but that is nothing. we are talking about maybe trillions of dollars that have been scanned and continually scam to every day from investors. but congress won't touch them. wall street has already learned how to overturn the dodd-frank regulations. they are already working around this very cleverly. that is one of the reasons. keep in mind when you go to the
voting booth. they all love you until they have your money. anybody else got any questions? yes, sir? >> what do you think was your biggest single event that created the turning point where you get your money back from the investment companies? >> i think the turning point came when we went political essentially. we started to let state attorneys general noah around election time that we were going to start grass-roots movements, hunger strikes and all that sort of thing if they didn't take action because the state attorneys general of the pivot points. those are guys like elliot spitzer and so on who get out
and take these guys to task. former attorney general cuomo did wonderful job for presidents of new york state and our state and so on helping us get our money back because he was up for elections so he put pressure on him that way. .. >> that's the first question. second question is your thoughts on the consumer protection
agencies and recent regulations. do you think that has us headed in the right direction to protect consumers from wall street? >> thank you. those are very good questions. yes, with rare exceptions the investors were diversified. and, yes, diversification is a good thing if you keep your eye on it. there's another point to be made here about diversification and portfolio management and how you handle your money. if you're not keeping your eye on it, if you're trusting somebody else, you're going to be in deep, deep water. if you don't -- do your own homework, please. do your own homework. the people who were primarily affected by the option rate securitys problem were the most conservative investors you could think of. they were seniors.
they were people who were either in retirement or about to retire and who were told that the option rate securities money fund, money market fund was the safest place you could possibly be. yes, some of 'em had, had, were well diversified. and when they, that cash that they thought they had, that money you have in your pocket, that money you have down in the bank, okay? when you walk down to your bank and they say, no, you can't have your money, you better have something else to cash in. and this was a, this only compounded their misery because suddenly they're selling their stocks in order to get along. so, yes, diversification helped them, but it also helped to break them because they couldn't lay their hands on any liquidity. as for the consumer protection agency, i say god bless them. i'm all for it. i don't know if they are in over
their heads or not. i suspect they are. wall street is the most dangerous neighborhood in america, and to spout platitudes and to shake your finger at these people and say, no, you shouldn't be doing that, these credit card swipes and all that, that's just not really nice, not fair to the consumer, not fair to the producer, not fair to the seller, wall street will fight them every step of the way. so they better be tough, and they better be ready. anybody else? yes, sir. >> when you -- [inaudible] it seems that -- [inaudible] >> [inaudible] thank you chg -- thank you. >> i want to thank everybody for coming here. i'm so happy to look out and see this beautiful crowd. this is, this is great.
people are actually interested in money. wow, that's great. [laughter] >> my question is with the state attorneys generals. so often you read about the settlements, and it's monetary settlement. again, no criminal prosecution. they seem to be getting away with a slap on the wrist, and a lot of publicity for the attorneys generals, but is there anything meaningful really that comes out of this, that it's going to result in reform situation? >> you're a very savvy guy. that's another great question. the answer is, no. [laughter] goldman sachs was fined $550 million for bamboozling its clients. and by the way, i know very high-end investors, people with hundreds of millions of dollars were considered pikers to goldman sachs and are losing
their shirts. that $550 million settlement that was paid out was made up in many two days, was recouped in two days. so it's not even a slap on the wrist. it's kind of a sneeze without a god bless you. anyone else? please. this may be the last chance you have to talk to the last cynic on -- [laughter] in gaithersburg about how to handle your money. well, if not -- >> [inaudible] >> oh. yes, sir. >> phil, continuing your example of wells fargo if you'd be willing to be specific, was there, was there no connection at all? was there an entire disconnect between the prior activities and awareness of them and then the approval of their bottom feeding
to pick up wachovia in the tough times? >> well, when you -- very interesting question, excellent question. obviously, you keep your eye on things. yes. bottom feeding is the word. when they picked up wachovia, they were very near the bottom. because wachovia was one of the big sellers of option rate securities. now, what wachovia failed to tell its customers, its clients, its suckers, its chumps was that every time an option rate security sale was made unlike a money market, an ordinary, plain, vanilla money market fund was that the broker got a commission. so when you sold a stock, as i did, i had bunches of brokers, lots of brokers, okay? and of those brokers over 30-some years, i can count five that i would say are honest people. but in any case, every time i would take a profit my broker
would say, okay, we'll buy -- let's get into, we'll put that cash away in the option rate money market bank. i didn't know that he was make what they call a tail, a tail on every frank action. transaction. so as to wells fargo, yes. when they were out in acquisition mode and they picked up wachovia, yes, indeed, they were very close to the bottom of the marianas trench when they picked up that company. does that answer your question? the -- and now they're together. they're together. they're like oppenheimers. this is the way to do business, you know? it's just like this. and where do you fit in this little pattern? that's the whole point. that that symbolism, this business does not allow for your hand to get involved. anybody else? questions, please.
>> quick question. i've recently been reading about the great depression, and i'm just curious, i don't know how much a student of history you are, but those who don't study history are doomed to repeat it. how much of this stuff resonates or makes sense compare today what happened in the great depression? were there any lessons that should have been learned then or subsequently that we didn't learn that sort of contributed to -- or ignored that contribute today the most recent downturn? >> yes, and we're doing it again. the great depression was a subject of criminal behavior, insider trading, um, what they call pump and dump. pump and dump, by the way, is what they do to you, for instance, when you have an initial public offering. linkedin just went to do an initial public offering.
they say come on in, and get involved, and there's only so much stock available. and when that stock is gone, you won't be able to get in on the, on the gravy train of linkedin. well, linkedin went from be here, $45 on first day, up to $90 some. that was the pump, okay? pump, pump, pump, pump, pump. and then the next day, of course, you sell. so all the chumps, okay? those investors who were lured in to this little trap lost a lot of money, and everybody else made a lot of money. another thing, too, i cannot read it -- oh, i got ya. i see that. the lessons of the great depression and the great recession are being repeated here today. wall street is fighting like crazy against any kind of reform, any kind of regulation.
it wants to do business as usual, and it will fight to the last minute in order to continue to do that. and it's only citizens and investors who are standing in the way of them simply running over everybody again. we're already predicting another big dip coming soon. so beware of that. i wish i could bring you little mary sunshine messages, but all i can say is beware. yes. anyone else? >> how you doing, sir? >> i'm doing fine, thank you, mr. troupe. >> so as we all know, we have two equally despicable parties in government, and the debt ceiling seems to keep getting up over and over and keeps getting
raised, and it's becoming an issue where people are starting to actually be aware of the debt ceiling. can you tell me what do you think is going to happen if, a, they raise it and continue to raise it or, b, if they actually hold and say we're not going to raise it, what do you think would happen in either of those instances? >> excellent question. let me take the last part first. if they don't raise the debt ceiling, everybody here that owns treasury bonds won't get any money. too bad. okay? anybody out there have any treasure are i bonds? -- treasury bonds? yes. everybody that's got a mutual fund -- too bad, too bad, too bad. and we'll have to say to china, who is our great, you know, partner, you know those billions and billions and billions of dollars you got -- sorry, we can't pay you. the market will tank. it will cause reverberations worldwide. it will be calamitous.
that's what will happen if we don't raise the debt ceiling, okay? so this is not a matter of principle, this is a matter of pragmatic reality. we have to raise the debt ceiling. and it's -- and the prospect of it not being raised even for a moment is already causing tremors, and that's why you saw the market dipping, one of the reasons you saw the market dipping down last week. if we do raise the debt ceiling, we'll be able to pay off our creditors, okay? now, we, obviously, will have to make cuts, we'll have to make adjustments in our budgets and so forth and so on. but in the end you have to pay your credit card bills. it's as simple as that. you have to pay your mortgage, it's as simple as that. so the ceiling must be raised. it will be raised. that isn't to say that it won't be raised without a lot of, you know, people lighting their hair on fire about it. but eventually, yes, it will be raised. and i certainly hope it will because i'd like to have my cash, frankly.
anybody else got a question? oui. oh, mon six -- >> as part of the debt problem, there's proposals to raise revenues by higher taxes. i read, you know, the real wealthy people only pay a little over 15% because that's what capital gains and dividends are taxed at. so maybe they're up to 17 or 18%. is there any chance at all of the dividends and the capital gains rates being increased? >> another very good question. i don't think we'll know the answer to that until after the 2012 elections. right now the top 1% of wage earners, or shall we call them america's answer to air strock cat ri -- aristocracy in the
leisure class, make more than 50%, own more than 50% of the wealth of this country. and guys like warren buffett, you know, that grandfatherly, lovable old figure pays fewer taxes than his secretary. after 2012 we'll find out whether we can equalize this somewhat. thank you for that question. i've been given a sign out there that says i have ten minutes left, and i don't know if i've eaten up that ten minutes. anybody else got any questions? yes, sir. >> um -- >> mic. >> i wish we could hear you as well as this mic. this mic sounds great. [laughter] you know? turn your mic up a little bit. i read your book, it's a great book, i highly recommend the book to everybody, it's
fantastic. what positive has come that you've seen from your efforts from writing the book, and what are some of the efforts outside of the book that you've done that people may not know that they should be aware of how they can connect to you and how they can find out more information? >> well, i think about, first, the thing about the mic, i'm wearing this, i don't know if that's picking up. what is the result of our efforts? people have wised up. i know some people who have problems with crooks even outside the country that may have learned a lesson or two from this, that you needn't be intimidated by these goofballs on wall street because, really, your broker is pretty much a well-dressed used car salesman, and i don't mean to denigrate
used car salesmen because at least they typically know what's under the hood. most of your brokers don't. and what was your other question? >> how can we connect with, how can we find out more -- [inaudible] sources online? >> well, you can go to my web lite which is beruthless.net. and you'll notice, if you can see this, you'll note right away the wolves here from tolkien's trilogy. and you can call me, e-mail me, whatever. i'll help you with your questions. and i don't even charge for it. so with that unless there are any other questions, i'm going to say adieu, adios.
have a great day. watch your money, be your own policeman, to the homework -- do the homework. bad luck -- good luck to all of you, and i hope the next time we meet everybody here is richer than rockefeller. thank you. [applause] thank you. >> thank you all for coming. that was great. i just wanted to remind everyone that phil will be signing books over here to my left, to your right, in the book autographing area. don't forget to fill out a survey, and also if you're interesting in hearing about next year's festival, sign up for our e-mail newsletter. we should be going on. thank you. in. >> that was phil trupp. we'll continue our live coverage of the 2011 gaithersburg book
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